I’m a Tax Expert: 3 Reasons You Should File an Extension
Tax season can be stressful, which is why so many people hire a tax preparer to handle all the work for them. However, if you’ve decided to do your own taxes but don’t think you’ll be finished by the April 15 deadline, you may want to consider filing a tax extension.
Keep reading as we discuss exactly what a tax extension is and some reasons why filing for an extension might make sense for you.
Read This: A Look at Tax-Filing Options and Costs
Up Next: Owe Money to the IRS? Most People Don’t Realize They Should Do This One Thing
What Is a Tax Extension?
A tax extension is an extension of time to complete your federal tax paperwork with the IRS. It is not an extension to pay your income taxes. Even if you file an extension, you must still pay your income taxes in full by the deadline.
In 2024, a tax extension submitted by April 15 moves your filing deadline to Oct. 15, 2024. To complete your extension, you’ll need to fill out Form 4868.
If you apply for a federal tax extension, make sure to look into your state and local filing requirements as well.
“Lots of people start panicking as the April 15 tax deadline draws near, but it’s a relief to learn that deadline isn’t as ironclad as it may seem,” said Armine Alajian, a startup accountant, fractional CFO, tax consultant and founder of the Alajian Group Inc. “It’s good to know that even the IRS understands that life happens, and there may be many valid reasons to file for an extension on income taxes.”
Check Out: 5 Presidents Who Raised Taxes the Most, and 5 Who Lowered Them
Why Would You File a Tax Extension?
There are several legitimate reasons why you may want to file a tax extension, including unexpected life events, to ensure that your tax information is correct or just to have more time to complete your taxes.
Unexpected Life Events
Unexpected life events, such as illness, house issues, work issues, having a new baby, etc., may make it challenging to complete your taxes on time. If you need additional time to complete your taxes due to these unexpected life events, you can file a tax extension.
To Ensure Your Tax Information Is Correct
Sometimes, filing an extension can ensure that your tax information is correct. You may be waiting on additional forms or tax-related information that has not arrived yet. Or if you work with a tax advisor or accountant, they may be too busy to complete your taxes during the normal tax season. If this is the case, it probably makes sense to have them file an extension to ensure everything is filed properly.
You Need More Time To Complete Your Taxes
You may need more time to complete your taxes for many other reasons. For example, you may be busy at your job and would have more time to complete your taxes during the extension period.
“Accounting offices across the country have people just walking in the door for the first time on April 15, when accountants are at their busiest,” said Alajian. “For those people, accountants only have time to file an extension, not to prepare their complete tax return.”
Why You Should Not Feel Guilty About Filing an Extension
You should not feel guilty if you need to file a tax extension. It is not a bad demonstration of your character, organization skills or time management abilities. In fact, many people file an extension every year.
Many People File an Extension
According to the IRS, over 19 million taxpayers submitted valid extensions for the 2022 tax season. So, you will not be alone if you file a tax extension.
It Doesn’t Mean You’re More Likely To Get Audited
Believe it or not, filing an extension does not make you more likely to get audited. No one knows for sure what triggers an audit. However, some financial professionals suspect that the IRS has an “audit quota” that begins to fill around mid-April. Therefore, filing an extension may make your chances of an audit even less likely than if you file on time. Regardless of whether the quota is real, there is little evidence that filing an extension will increase your chances of being audited.
Disadvantages of Filing a Tax Extension
Unfortunately, filing a tax extension has some disadvantages. These include the fact that you may wait longer for your tax refund and may have to pay penalties and fees for miscalculations.
You Will Wait Longer for Your Tax Refund
The IRS cannot process your refund until you submit your tax return. Filing an extension will delay your refund.
You May Have To Pay Penalties and Fees for Miscalculations
Even if you receive an extension to file your taxes, you must pay the taxes you owe by the original tax-filing deadline. If you don’t, you will have to pay late payment penalties. The IRS will charge you 0.5% each month on the amount of tax you still owe after the deadline. If you don’t file a return at all by the extension deadline, the IRS penalty increases to 5% per month for a maximum penalty of 25%.
The Bottom Line
Filing a tax extension is fairly common, and there are many legitimate reasons for doing so. But before you file a tax extension, weigh the disadvantages to make sure it is the right decision for you.
“Rushing through a return could mean making time-consuming or costly mistakes, so if you’ve waited until the last second, whether it’s because a cyclone hit your house or because the dog ate your paperwork, file for an extension,” said Alajian.
More From GOBankingRates
Dave Ramsey: Why You Shouldn't Buy a New Car/Take Out an Auto Loan This Year
5 Reasons You Should Consider an Annuity For Your Retirement Savings
This article originally appeared on GOBankingRates.com: I’m a Tax Expert: 3 Reasons You Should File an Extension
